Alpha Company purchased a $1,000, 5 years, 5% bond on July 1, 2015 for $950. Interest is paid semi-annually on June 30. The straight line method of amortization is used for both premiums & discounts. Use this information to prepare the adjusting General Journal entry (without explanation) for the December 31, 2017. If no entry is required then write "No Entry Required."

Question

Pierre Lynch

Business

17 February, 11:09

Alpha Company purchased a $1,000, 5 years, 5% bond on July 1, 2015 for $950. Interest is paid semi-annually on June 30. The straight line method of amortization is used for both premiums & discounts. Use this information to prepare the adjusting General Journal entry (without explanation) for the December 31, 2017. If no entry is required then write "No Entry Required."

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Lawson Walton · Answer 1

Cash 25 debit

discount on bonds 5 debit

interest revenue 30 credit

Explanation:

Notice we are working with the books of the company who purchase the bond

cash proceeds 1,000 x 5%/2 = 25

amortizaion 950 - 1000 = - 50 discount

discount/total payment = amortization under straight-line method

5 years at 2 payment per year = 10 payment

50/10 = 5 amortization per payement

Cash proceed + amortization discount = interest revenue

25 + 5 = 30